ATLANTA, July 28 -- Georgia-Pacific Corp. today reported second quarter 2005 net income of $194 million (73 cents diluted earnings per share) compared with net income of $220 million (84 cents diluted earnings per share) in second quarter 2004.
"Our North America consumer products business achieved a 49 percent improvement in operating profit compared with the second quarter last year and our building products manufacturing business continued its near-record performance," said A.D. (Pete) Correll, chief executive officer and chairman of Georgia-Pacific.
"During the most recent quarter, raw materials and energy inflation increased our operating costs companywide by approximately $105 million compared with the second quarter in 2004," Correll said. "In addition, our operations were affected by planned and unplanned mill maintenance outages. In spite of these factors, we remain on track to achieve significant cost improvements and reach our North America consumer products operating profit goal by the end of 2006."
Second quarter 2005 net income before unusual items was $217 million (82 cents diluted earnings per share). Unusual items included:
* A $13 million charge ($8 million after tax, or 3 cents diluted loss per share) related to the early extinguishment of debt,
* An $11 million charge ($11 million after tax, or 4 cents diluted loss per share) to establish a liability reserve related to an Internal Revenue Service (IRS) challenge of the tax-exempt status of several series of bonds issued to finance construction of solid waste recycling and disposal facilities at certain of the company's mills,
* A $4 million charge ($2 million after tax, or 1 cent diluted loss per share) for closure of the Caledonia, Ontario, gypsum mine and other closure costs, and
* A $3 million charge ($2 million after tax, or 1 cent diluted loss per share) for settlement of an asbestos insurance receivable.
In addition, second quarter 2005 results include a pretax credit of $5 million ($3 million after tax, or 1 cent diluted earnings per share) related to the expensing of stock-based compensation versus a pretax charge of $36 million ($23 million after tax, or 9 cents diluted loss per share) in second quarter 2004.
Second quarter 2004 net income before unusual items was $239 million (91 cents diluted earnings per share). Unusual items included:
* A $60 million gain ($13 million after tax, or 5 cents diluted earnings per share) on non-strategic asset sales,
* A $27 million charge ($17 million after tax, or 6 cents diluted loss per share) for the early extinguishment of debt, and
* A $24 million charge ($15 million after tax, or 6 cents diluted loss per share) for asset impairment and restructuring.
Note: Georgia-Pacific management believes that, because of the nature of these items, investors' understanding of the company's performance is enhanced by disclosing net income before the unusual items as a reasonable basis for comparison of the company's core ongoing results of operations. The attached Reconciliation of Earnings Before Unusual Items provides a reconciliation of net income before the unusual items to net income determined in accordance with generally accepted accounting principles.
Georgia-Pacific's net sales were $4.8 billion for the second quarter 2005, compared with $5.2 billion for the second quarter 2004. Excluding sales from the building products distribution business, which was sold in May 2004, net sales for the second quarter 2005 increased $56 million, compared with second quarter 2004. While building products sales were strong in the quarter, they were down from the record levels experienced in the second quarter of 2004. This decline was more than offset by higher sales in our North America consumer products segment resulting from price increases realized in 2004 and 2005.
Net sales for the first six months of 2005 were $9.4 billion, compared with $10.4 billion in the same period a year ago. Excluding sales from the building products distribution business, which was sold in May 2004, net sales for the first six months of 2005 increased $332 million, or 4 percent, compared with the first six months of 2004.
For the first six months of 2005, Georgia-Pacific reported net income of $399 million ($1.51 diluted earnings per share), compared with $367 million ($1.40 diluted earnings per share) in the same period of 2004.
For the first six months of 2005, the company reported net income excluding unusual items of $421 million ($1.60 diluted earnings per share), compared with $402 million ($1.53 diluted earnings per share) in the same period of 2004.
Total debt was $8.5 billion at the end of the second quarter, down $230 million versus the first quarter of this year.
North America Consumer Products
The North America consumer products segment includes the company's retail and commercial tissue businesses. Familiar consumer tissue brands include Quilted Northern, Angel Soft, Brawny, Sparkle, Soft 'n Gentle, Mardi Gras, So-Dri and Vanity Fair, as well as the Dixie brand of disposable cups, plates and cutlery.
The segment recorded second quarter 2005 operating profit of $220 million versus $148 million in second quarter 2004. Included in the second quarter 2004 results were pretax charges of $19 million for asset impairment and restructuring charges related primarily to the Bellingham, Wash., property.
Improved performance for the segment was driven by favorable price and mix versus the same quarter one year ago, with overall tissue prices up 11 percent per ton. As anticipated, volume in tons declined 4 percent due to the disciplined implementation of previously announced price increases as well as product reformulations. The company has announced a price increase for its commercial business effective Oct. 1.
Higher prices for purchased pulp, energy and chemicals, while partially offset by lower wastepaper costs during the quarter, masked continued progress in the company's ongoing cost reduction efforts. The company also experienced planned and unplanned mill outages in several key integrated manufacturing operations, which negatively affected maintenance and other costs.
International Consumer Products
The international consumer products segment markets both retail and commercial products such as bathroom and facial tissue, handkerchiefs and paper towels, as well as personal care products in Europe and other locations. Market-leading brands include Lotus, Moltonel, Colhogar, Tenderly, Delica and Demak'Up.
The segment recorded a second quarter 2005 operating profit of $22 million, compared with $38 million during the same quarter a year ago.
Competitive market conditions and industry overcapacity continued to impact this business. Prices were down 2 percent in Euros and total volume was down 3 percent.
Costs associated with a delayed startup following the rebuild of a paper machine in the United Kingdom and raw material inflation contributed to the decline in operating profit. A pulp and paper industry strike in Finland impacted both volume and operating profit negatively. These factors were partially offset by ongoing cost reduction.
Changes in the currency exchange rate between the U.S. dollar and the Euro since the second quarter 2004 benefited second quarter 2005 results by approximately $1 million.
Georgia-Pacific's packaging segment includes four containerboard manufacturing facilities and 55 converting operations. Its Color-Box subsidiary is the leading high-graphics, litho-laminated corrugated manufacturer in North America.
The segment recorded an operating profit of $68 million in the second quarter 2005, compared with $82 million in the second quarter 2004. Results in second quarter 2005 include a $1 million charge for additional closure costs for three packaging facilities, closed in previous quarters. Second quarter 2004 results include a $23 million pretax gain on the sale of the South San Francisco, Calif., facility that was partially offset by asset impairment and pretax restructuring charges of $5 million.
Box prices were up 7 percent versus the second quarter 2004. Higher costs for fiber, energy, chemicals and maintenance partially offset price gains from the second quarter 2004.
Corrugated shipments were flat compared with a year ago, which is slightly better than Fibre Box Association-reported industry shipments, while containerboard shipments declined due to slowback and maintenance downtime to maintain appropriate inventory levels.
Bleached Pulp and Paper
The bleached pulp and paper segment is comprised of the company's communication papers, bleached board and kraft businesses, and its 40 percent minority ownership in Unisource.
The segment recorded a second quarter 2005 operating profit of $2 million, compared with an operating profit of $27 million in the second quarter 2004. Second quarter 2004 results included a $26 million pretax gain on the sale of an interest in three Brazilian companies that owned a minority, non-voting interest in the Brazilian pulp company, Aracruz Celulose S.A.
Operating profit was impacted by lower volume, and maintenance and other costs related to planned and unplanned outages at several of the company's key manufacturing facilities. Prices for all paper grades were up compared with the second quarter 2004, while volumes were down.
The company's diversified building products segment includes structural panels, gypsum, lumber, industrial wood products and chemical manufacturing businesses.
The segment continued near-record performance with second quarter 2005 operating profit of $228 million versus $366 million in the second quarter 2004. Second quarter 2005 results include a $3 million charge ($2 million after tax, or 1 cent diluted loss per share) for closure of the Caledonia, Ontario, gypsum mine.
Demand remained strong for structural panels, lumber and gypsum products due to robust residential and non-residential construction activity.
Volume was up almost 10 percent for both plywood and oriented strand board compared with the second quarter last year. Prices for these structural panels were off from 2004 record levels but remained strong. OSB shipments included volume from the new Hosford, Fla., facility, which successfully started up in May. Lumber prices strengthened, and particleboard prices held firm although volume was down. All businesses were impacted by higher wood and resin costs.
The gypsum business achieved both price and volume increases driven by the strength of residential and commercial demand. Total gypsum volumes were up 14 percent due to increases in both ToughRock and the DENS line of glass mat gypsum products. In keeping with its strategy to increase its sales of diversified specialty building products, the company introduced its mold- resistant DensArmor Plus interior wallboard in retail outlets during the quarter. A price increase for ToughRock went into effect at the end of the second quarter and an increase for several DENS products was announced for the third quarter of this year.
The company's Other segment primarily includes unallocated corporate expenses and the elimination of intersegment sales and profits.
The segment reported second quarter 2005 expenses of $84 million, compared with expenses of $144 million for the same period in 2004 due primarily to significantly lower costs for stock-based compensation and other incentives, insurance and benefits, and foreign currency translation. A $5 million pretax credit was recorded for stock-based compensation due to lower stock prices versus a $36 million charge a year ago, which included the recognition in 2004 of expenses related to 2002 performance awards.
Second quarter 2005 unusual items included:
* A $13 million charge for the early extinguishment of debt,
* An $11 million charge to establish a liability reserve related to an Internal Revenue Service (IRS) challenge of the tax-exempt status of several series of bonds issued to finance construction of solid waste recycling and disposal facilities at certain of the company's mills, and
* A $3 million charge for settlement of an asbestos insurance receivable.
Included in the second quarter 2004 results were an unusual $27 million pretax charge for early extinguishment of debt and a $2 million gain related to miscellaneous asset sales.
"Georgia-Pacific remains focused on our commitment to earn acceptable returns across our businesses," Correll said. "We will exercise manufacturing discipline in the face of cost and price pressures while continuing to strive for operational excellence. Our financial goal remains to realize solid investment-grade metrics."
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